Do environment regulations matter for EU-MENA trade?

This study examines the impact of environmental regulations stringency on agricultural trade between European Union (EU) and Middle East and North Africa (MENA countries). Using a gravity model and applying the zero-inflated Poisson (ZIP) model, we estimate the impact of environmental regulations stringency on bilateral agricultural exports between 28 EU and 20 MENA countries during the period 2001–2014. The results have showed that environmental regulations do matter for agricultural trade between both regions because in the presence of excessive zero trade observations, they act as significant fixed export costs that affect the probability of trade. More stringent environmental regulations stimulate innovative efforts in cost-saving green technologies, which increase productivity and positively affect agricultural exports. The results have favoured the revisionist Porter hypothesis (PH), according to which environmental regulations may stimulate innovative efforts, which mitigate the negative effects of higher fixed abatement costs and enhance trade competitiveness.     

Fixed export cost heterogeneity, trade and welfare

Recent literature on the workhorse model of intra-industry trade has explored heterogeneous cost structures at the firm level. These approaches have proven to add realism and predictive power. This paper presents a new and simple heterogeneous-firms specification. We develop a symmetric two-country intra-industry trade model where firms are of two different marginal cost types and where fixed export costs are heterogeneous across firms. This model traces many of the stylized facts of international trade. However, we find that with heterogeneous fixed export costs there exists a positive bilateral tariff that maximizes national and world welfare.     

The impact of cultural exceptions: audiovisual services trade and trade policy

Audiovisual services such as music and movies in digital formats have gained substantial importance over the last decade, while remaining one of the sectors with the lowest number of commitments by WTO members. Based on a novel data set, this article analyses the role of trade restrictions on audiovisual services in a gravity model. We find that countries with WTO commitments trade more audiovisual services, while both exports and imports are lower for countries which impose policies to curb inflows of foreign cultural services.     

Determinants of Net Trade Flows in the OECD: New Evidence with Special Emphasis on the Former Communist Members

This study estimates an econometric panel-data model, in order to explore the capacity of some of the hypotheses formulated in recent dynamic models of trade and economic growth to explain the bilateral trade of OECD countries. The study suggests that the larger a country's endowment of both tangible and intangible (human and technological) capital in relation to that of its trade partners, the higher the export/import ratio of its bilateral trade. It also shows that direct investment enhances the export/import ratio with the host country. The former communist countries reflect only minor differences from the other OECD members.     

ADJUSTED ESTIMATES OF UNITED STATES–CHINA BILATERAL TRADE BALANCES: AN UPDATE

Abstract.  Large differences exist between the official United States and Chinese data on trade balances between the two countries. In this paper, four adjustments are made to the export and import data of the two governments: (i) freight along side (f.a.s.)-free on board (f.o.b.) and cost, insurance and freight (c.i.f.)-f.o.b. conversions; (ii) re-exports through Hong Kong (and elsewhere); (iii) re-export markups; and (iv) trade in services. After adjustments, our best estimate for the 2005 bilateral trade balance is $US170.7 billion, in China's favour, which is much larger than the official Chinese balance of $US114.2 billion but also much smaller than the official US balance of $US201.6 billion.     

Cultural proximity and trade

Cultural proximity is an important determinant of bilateral trade volumes. However, empirical quantification and testing are difficult due to the elusiveness of the concept and lack of observability. This paper draws on bilateral score data from the Eurovision Song Contest, a very popular pan-European television show, to construct a measure of cultural proximity which varies over time and within country pairs, and that correlates strongly with conventional indicators. Within the framework of a theory-grounded gravity model, we show that our measure positively affects trade volumes even if controlling for standard measures of cultural proximity and bilateral fixed effects.     

Exporters in cross‐section: Direct versus intermediated trade

How do producers that export their goods directly differ from those that export through trade intermediaries? We take a standard model of trade with heterogeneous firms and add heterogeneity in quality to the usual heterogeneity in productivity. Modeling trade intermediaries as increasing marginal costs but decreasing fixed costs of exporting, we find that only firms with the highest quality‐adjusted productivity levels choose to export directly. Under certain parameter restrictions, the model shows that direct exporters tend to be larger and charge higher prices for their goods. In contrast to the literature, using Chinese customs data, we confirm that direct exporters do charge higher prices for their goods.     

The effect of exchange rate changes on trade balances in the short and long run

Using generalized impulse response functions, this study tests for the trade J‐curve for three transitional central European countries – the Czech Republic, Hungary, and Poland – in their bilateral trade with respect to Germany. Our findings suggest that for each country there are some characteristics associated with a J‐curve effect: after a (real or nominal) depreciation the export‐to‐import ratio briefly drops to below its initial value within a few months and then rises to a long run equilibrium value higher than the initial one.     

Export performance of developing countries: Does landlockedness matter?

Landlockedness imposes additional costs on trade and reduces international competitiveness. This paper examines the determinants of export performance in developing countries, within a comparative perspective of landlocked developing countries (LLDCs) and non‐landlocked developing countries, by using a standard gravity modeling framework. The study covers data from 1995 to 2015. The results suggest that despite recent trade policy reforms, the overall export performance of LLDCs is lower than that of non‐landlocked developing countries due to the inherent additional trade costs associated with landlockedness. The conventional wisdom that export performance is aided by economic openness also applies to LLDCs, but distance‐related trade costs have a greater negative impact on exports from LLDCs than on other developing countries. The immediate trade policy challenge for LLDCs is therefore to create a more trade‐friendly environment by lowering tariffs, reforming exchange rates and entering into regional trade agreements.     

Trade,transport costs and trade imbalances: An empirical examination of international markets and backhauls

The US trade deficit has been growing for over 25 years and has been accompanied by enlarging freight rate differentials. While traditional models of trade have ignored these gaps assuming symmetry across all bilateral trade costs, the specific linkages between trade imbalances and international transportation costs have remained unexplored. Given the current trade policies, the implications arising from the endogenous adjustment of bilateral transport costs to policy-induced changes in the US trade deficit are of particular importance. To break new ground on this issue, we develop and estimate a model of international trade and transportation that accounts for the effects of persistent trade imbalances. The theoretical results are supported by our empirical analysis and indicate that bilateral transport costs adjust to a country's trade imbalance. The implication is that a unilateral import policy, for example, will cause spillover effects into the bilaterally integrated export market. To illustrate, we use our empirical results to simulate the anticipated spillover effect from the Chinese ban on waste imports. We find that China's ban and the projected 1.5% rise in the US trade deficit will lead to not only a 0.77% reduction of transport costs charged on US exports to China but also a 0.34% increase in transport costs on US imports from China.     

Distance and trade: Disentangling unfamiliarity effects and transport cost effects

This paper provides evidence supporting Grossman's (Comments on Alan V. Deardorff, Determinants of bilateral trade: Does gravity work in a neoclassical world?. In: Jeffrey A. Frankel (Ed.), The regionalization of the world economy. Chicago: University of Chicago for NBER; 1996) claim that not only transport costs but also unfamiliarity can explain the negative correlation between geographic distances and bilateral trade volumes. A gravity model that controls for as many natural causes of trade as possible reveals that countries high in uncertainty-aversion (based on Hofstede's survey) export disproportionately less to distant countries (with which they are presumably less familiar). More important, this result is mainly driven by differentiated products, not by products with international organized exchanges or with reference prices. For transport costs alone to explain such a trade pattern, one would have to assume that distance-related ad valorem transport costs are higher when a trade route originates from a high uncertainty-aversion country, which is unlikely. This trade pattern is easy to explain, however, if one accepts that geographic distance is a proxy for unfamiliarity and that exporters in high uncertainty-aversion countries are more sensitive to informational ambiguity. A further result is that high uncertainty-aversion countries trade less and thus grow poorer in the long run, which suggests that cultural factors are as important as geographic ones in determining trade openness and prosperity.     

Not so different from non-traders

This paper uses a unique, comparable firm-level dataset covering more than 80 developing middle-income economies to provide a novel set of stylized facts on firms engaging in international trade, focusing on the Middle East and North Africa (MENA) region. We show that firms in MENA are more likely to export and/or import than their counterparts elsewhere. However, we only find the expected positive and significant productivity premia for exporters outside of MENA. While MENA's larger exporters are indeed more productive than non-exporters, a large share of exporters – the comparatively low-volume ones – are not. We also confirm positive and significant size and productivity premia for manufacturers that import only, with productivity premia in MENA at least double of those in middle-income economies elsewhere. In contrast, we find no size or productivity premia for MENA's manufacturers that export, but do not import. These patterns are consistent with substantial distortions in the relative fixed and variable costs of trading, likely a reflection of selectively applied policies.     

Does it Matter Who You Sign With? Comparing the Impacts of North–South and South–South Trade Agreements on Bilateral Trade

Free trade agreements (FTAs) lead to a rise in bilateral trade regardless of whether the signatories are developed or developing countries. Furthermore, the percentage increase in bilateral trade is higher for South–South agreements than for North–South agreements. The results are robust across a number of gravity model specifications in which we control for the endogeneity of FTAs (with bilateral fixed effects) and also take account of multilateral resistance in both estimation (with country‐time fixed effects) and comparative statics (analytically). Our analytical model shows that multilateral resistance dampens the impact of FTAs on trade by less in South–South agreements than in North–South agreements, which accentuates the difference implied by our gravity model coefficients, and that this difference becomes larger as the number of signatories rises. For example, allowing for lags and multilateral resistance, a four‐country North–South agreement raises bilateral trade by 53% while the analogous South–South impact is 107%.     

Trade in the enlarged European Union: a new approach on trade potential

This paper focuses on the trade potential of manufactured exports from countries belonging to the enlarged EU (EU25) to groups of countries of that economic area in 2002. We note that previous results on trade potential, based on the estimation of a gravity model, may be invalid. Thus, we propose a correct approach based on the Poisson Pseudo-Maximum Likelihood estimator and the calculation of confidence intervals with the Delta method. The gravity model includes fixed effects to capture bilateral trade specificities between country groupings. We conclude that CEEC as a group had apparently exhausted the possibilities for export expansion in the EU25, unless dynamic changes were to take place. However, several of the remaining EU25 countries had not yet reached their export potential to the EU25 markets, including to the CEEC as a group.     

Second thoughts on the exporter productivity premium

Abstract Contrary to the prevailing interpretation, this paper shows that the central models of trade with heterogeneous firms ( Melitz 2003 ; Bernard et al. 2003 ) exhibit ambiguous predictions for the exporter productivity premium. This prospect arises because of differences between theoretical and empirical representations of firm productivity. Instead of marginal productivity, we examine in both models the theoretical equivalent of empirically observable productivity (value‐added per employee). Given the presence of fixed export costs or heterogeneous mark‐ups and trade costs, the observable productivity of exporters in proximity to the export‐indifferent firm turns out to be lower than that of non‐exporters; that is, the productivity distributions overlap. The paper reviews empirical literature that reports non‐positive exporter productivity premia in firm‐level data and discusses implications for empirical research on exporter performance, including learning and the role of non‐parametric regressions (stochastic dominance, quantile regressions), fixed costs, and productivity distributions.     

What explains indirect exports of goods and services in Eastern Europe and Central Asia?

This paper investigates the determinants of indirect exporting, using firm-level data for 27 countries in Eastern Europe and Central Asia. Indirect exporting depends on a combination of fixed and variable trade cost factors. We first hypothesize that firms that perceive customs, transportation, crime and legal systems as severe obstacles anticipate higher fixed costs and are more likely to export indirectly. The second hypothesis is that indirect exporting tends to be a temporary strategy. Econometric models are used to test the first hypothesis and transition matrices to test the second. In particular, probit, Heckman-probit and fractional response models are estimated to analyse the determinants of the export mode and the share of indirect exports. The results indicate that the factors that account for the fixed cost of exporting, mainly affect the decision to export indirectly (extensive margin), but some of them also affect, to a lesser extent, the amount exported indirectly (intensive margin). More specifically, factors such as customs and trade restrictions and transportation obstacles affect the extensive margin only, whereas crime affects both margins. Secondly, trade agreement membership mainly affects trade in manufactured goods, while exchange rate volatility affects positively the extensive and intensive margin of indirect exports of services. The results also indicate that firms are more likely to change their status as an indirect exporter than they are to change their status as a direct exporter or a non-exporter, which provides support to the second hypothesis.     

Pecking order and core‐periphery in international trade

This paper analyzes the impact of market size and trade costs on bilateral trade flows. A multi‐country trade model with firm‐level heterogeneity in productivities and countries’ market potential provides a simple micro foundation for the link between these variables. In the model, market size and trade costs jointly determine a country‐specific pecking order of exporters serving their destination countries. In a counterfactual setting where bilateral trade costs are homogeneous across country pairs, market size predicts a common ranking of exporters among destination countries. This leads to a unique core‐periphery structure of the world trade network. With heterogeneous trade costs, we illustrate the impact of market size and trade costs on bilateral trade flows and its margins in a simple gravity‐like setting. Using an instrumental variables approach, we find that both market size and trade costs (measured through the network position of countries) have a significant impact on bilateral exports: countries in the core bilaterally trade more with other countries in the core than with peripheral countries, conditional on typical observables.     

Beyond Dutch disease

How does the deterioration of rule of law in Russia in recent years affect its ability to move away from an export pattern dominated by natural resources? We investigate this question using three datasets for Russia's bilateral trade relations for goods, services and investment at disaggregated level with its partner countries over the world. Our empirical analysis shows that the deterioration of the rule of law in Russia since 2003 has affected the long‐run trade performance of Russia in sophisticated and technology‐intensive manufactured goods, as well as its inward investments with advanced economies. It is precisely this type of trade that Russia should nurture to diversify away from hydrocarbons export dependence. Our statistical analysis also shows that Russia remains to a large extent an outlier within the multilateral trading system. It exports disproportionately less to partner countries which are or had become members of the WTO over our period of analysis. Russia's trade appears to have been negatively affected by the accession of these countries to the WTO. Russia itself finally acceded to the WTO in July 2012 amidst signs of a modest improvement of its rule‐of‐law indicators.     

Institutional quality and the effectiveness of aid for trade

Trade policy barriers and high transaction costs hinder developing countries from taking the full advantages of the global trading system. In order to help developing countries overcome the problem, the World Trade Organization (WTO) launched the Aid for Trade (AFT) initiatives in its Ministerial Conference held in Hong Kong in 2005. We examine the effects of AFT inflows on bilateral trade costs facing 133 developing countries while accounting for differences in their location on the contours of various measures of institutional quality. Our results from the estimation of a mixed effects (random-intercept and random-coefficient) model indicate that institutional quality significantly affects the extent to which AFT reduces bilateral trade costs. An important policy implication of our findings is that an economically robust and sustainable reduction in bilateral trade costs facing developing countries requires the presence of both promulgated and effectively functioning institutions such as regulatory power and the rule of law.     

What drives cross-country differences in export variety? A bilateral panel approach

A worldwide event like the 2020 Coronavirus outbreak can only reinforce the interest in modelling trade diversification as a key factor in countries’ vulnerability to external shocks. This paper adopts a detailed relative framework to study the determinants of product-level export variety in a large bilateral panel of developing and developed economies (16,770 country pairs in the period 1988–2014). We find that country pairs characterized by large differentials in productivity and in the makeup of the labour force differ in export variety patterns. This result holds after controlling for other endowments and for trade costs. Further, productivity plays a significant role in the reduction of export variety dissimilarities between countries belonging to different income groups. Hence, without successful technological convergence the low-income economies will not be able to reduce their exposure to export risk.